Forex Blog

June 17, 2013

Libor Manipulation may be more serious than initially thought

The probe of Libor manipulation is proving to be the tip of the iceberg as inquiries into assets from derivatives to foreign exchange show that if there’s a chance to rig benchmark rates in world markets, someone is usually willing to try.

Singapore’s monetary authority last week censured 20 banks for attempting to fix interest rate levels in the island state and ordered them to set aside as much as $9.6 billion. Britain’s markets regulator is looking into the $4.7 trillion-a-day currency market after Bloomberg News reported that traders have manipulated key rates for more than a decade, citing five dealers.

“It’s happened time and again: all of these markets have been influenced by major market-makers, which is a polite way of saying they’ve been rigged,” Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, said in a telephone interview.

While the indexes under scrutiny are little known to the public, their influence extends to trillions of dollars in securities and derivatives. Barclays Plc (BARC), UBS AG and Royal Bank of Scotland Group Plc have been fined about $2.5 billion in the past year for distorting the London interbank offered rate, which is tied to $300 trillion worth of securities. Regulators are also probing ISDAfix, a measure used in the $370 trillion interest-rate swaps market, as well as how some oil products prices are set.

Bloomberg

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November 25, 2011

Forex Market Outlook 11/25/11

I hope everyone here in the US had a great Thanksgiving yesterday, though the same can’t be said for the markets.  We are still in risk aversion mode as the Euro debt crisis continues to plague the global economy so the US dollar has been the favored investment vehicle of choice.

Today is a shortened session here in the US with the stock market open for a half-day session.  There is likely to be little action for stocks so the correlative effects of market movements will be minimal.  However, it must be noted that with decreased volume there is sometimes increased volatility.

While there is no news due out for the US session, a quick recap of this morning’s news shows that confidence figures in the Euro zone came in worse than expected.  While this is not surprising, yesterday’s reports of German GDP and confidence figures were positive.  GDP in Germany was 2.5% YoY, as expected.  IFO confidence figures all cam e in better than expected which shows that Germany is still moving along, despite the bond auction disaster from earlier this week,

In the UK, GDP figures also came in as expected, showing .5% growth which is not a great figure.  It is for this reason that the BOE has been ultra-accommodative despite the high inflation they are experiencing. 

Also in the Euro zone, Portugal had their credit rating reduced to junk status, and they have been all but an afterthought as the markets have focused on the Spanish banks and Italy’s government debt.

The picture continues to worsen in the Euro zone and the push for a Euro bond is picking up traction, for those who still want to see the Euro succeed.  As this situation drags out, the global economy will continue to suffer and a solution will not be forthcoming overnight.

But we are seeing a bit of a morning bounce here as perhaps some of the selling was overblown.  Risk still remains at heightened levels so I’m going to continue with the short-term trading themes until more clarity emerges.

Forex Market Outlook 11/25/11

I hope everyone here in the US had a great Thanksgiving yesterday, though the same can’t be said for the markets.  We are still in risk aversion mode as the Euro debt crisis continues to plague the global economy so the US dollar has been the favored investment vehicle of choice.

Today is a shortened session here in the US with the stock market open for a half-day session.  There is likely to be little action for stocks so the correlative effects of market movements will be minimal.  However, it must be noted that with decreased volume there is sometimes increased volatility.

While there is no news due out for the US session, a quick recap of this morning’s news shows that confidence figures in the Euro zone came in worse than expected.  While this is not surprising, yesterday’s reports of German GDP and confidence figures were positive.  GDP in Germany was 2.5% YoY, as expected.  IFO confidence figures all cam e in better than expected which shows that Germany is still moving along, despite the bond auction disaster from earlier this week,

In the UK, GDP figures also came in as expected, showing .5% growth which is not a great figure.  It is for this reason that the BOE has been ultra-accommodative despite the high inflation they are experiencing. 

Also in the Euro zone, Portugal had their credit rating reduced to junk status, and they have been all but an afterthought as the markets have focused on the Spanish banks and Italy’s government debt.

The picture continues to worsen in the Euro zone and the push for a Euro bond is picking up traction, for those who still want to see the Euro succeed.  As this situation drags out, the global economy will continue to suffer and a solution will not be forthcoming overnight.

But we are seeing a bit of a morning bounce here as perhaps some of the selling was overblown.  Risk still remains at heightened levels so I’m going to continue with the short-term trading themes until more clarity emerges.

November 4, 2011

Forex Market Outlook 11/4/11

Today is “jobs Friday” as we are awaiting the Non-Farm Payrolls report which is expected to show that the economy added 100K jobs, 125K in the private sector and the unemployment rate to remain steady at 9.1%.  These are hardly attractive numbers, yet anything remotely close to these will be seen as positive by the markets. 

What might be a decent (but unfortunate) prognostication of our jobs figures is the Canadian employment report that came out earlier this morning.  Canada produced dismal numbers, showing that they lost 54K jobs when they were expected to have added 15K, and the unemployment rate moved higher to 7.3% vs. an expected 7.1%.  This is certainly not good at a time when global recession fears are increasing.  Take a look at the chart of the day to see how the market reacted to the Loonie.

The only positive about “jobs Friday” is that it momentarily takes our attention away from the Euro zone debacle.  Yesterday as I noted in an update, new ECB chief Draghi reduced interest rates by 25bp in his first official act, preferring to battle economic woes through rate policy rather than quantitative easing.

However it was his speech following the announcement that caused the Euro to tank as he said that the Euro was definitely facing a “mild recession” which could be construed that he sees big problems on the horizon.  This assertion could be confirmed by the release of Euro zone PMI figures that all came in lower than expected.  In addition Germany, the stalwart economy of the Euro zone, showed that factory orders fell 4.3% vs. an expectation of a gain of .1%.  This pushed the YoY figure down to 2.4% from an expected 7.5%.  That’s a pretty big miss.

This sentiment is also not lost on the RBA in Australia, who just reduced their growth targets after lowering interest rates earlier this week.

While the economic landscape may be deteriorating, the G-20 is doing its part to hold things together.  The undressing of Papandreou caused him to back away from the referendum on the debt deal, but he and his government still face the confidence vote later today.  There is all kinds of speculation about what may occur, from his resignation regardless of vote to a new transitory coalition being formed.

One thing though that is certain after all of this political quagmire:  Greece does not want to leave the Euro zone.  While I have been calling his moves “idiotic” over the past few days, they may turn out to be pretty shrewd after all is said and done.  While the game of chicken he played was rather crazy, he essentially is making Greeks decide what it is they really want.  While no one over there likes the austerity that is required to remain in the Euro zone, the alternative is far worse.  It probably would have been better though had he given EU leaders advance notice of his intentions.

**Update**  Non-Farm Payrolls just came in showing a gain of 80K, 104K in the private sector but the unemployment rate ticked lower to 9%.  The market is reacting somewhat favorably to these figures as I mentioned that it just needed to be close this morning.  Whether or not this is enough to sustain a rally into the close is another story entirely.

For it may be difficult to take risk into the weekend ahead of the Greek confidence vote as the scenario is unlikely and even if Papandreou wins, there’s no telling what may happen over the weekend, including his resignation.

With a recent weak Dollar and interest rate reductions around the globe, inflation fears are starting to increase.  Gold shot up yesterday on the Euro rate reduction and may be invoking some of its inflationary hedge properties rather than its risk vehicle status.

With the overhang of risk in the markets emanating from both the Euro debt crisis and the US debt debate, my opinion is that markets are trading lower on fear alone.  With the flush of cash moving around the globe, we would be a lot higher if not for these crises. 

The US debt commission has largely escaped notice but lets not forget that they have a dead-line of roughly two weeks to get a deal done and if they can’t come to an agreement, automatic cuts kick in and another potential credit downgrade could be forthcoming. 

So my bias is definitely to the upside, though I will proceed cautiously as one never knows what politicians may do.  If you don’t believe me, look no further than Greece.

November 1, 2011

Forex Market Outlook 11/1/11

Do you remember last week when I said that with regard to the Euro debt crisis resolution, the devil is in the details?   Well it looks like that prognostication was prescient as new information is coming to light.  At the time I noted that while the plan sounded good, how they would actually enact it would be more important.  Now there is sentiment that the process could be derailed as unforeseen issues are starting to materialize.

Case in point; in Greece yesterday the government announced that they would be putting the debt deal to referendum and would be holding a confidence vote for Parliament.  This is dangerous for two reasons, as for starters this unpopular deal could be unwound by a public vote and then secondly, the majority who voted for it could be replaced by those who are against it thereby rendering it ineffective.   While this is a nice idea by the government to be democratic, it is very bad for the markets as now there is increased uncertainty about the deal.  If politicians put every unpopular decision to referendum, nothing would ever get accomplished.

The second potentially disruptive news from the Euro debt deal is that China is publicly stating that they will not bail out Europe so their participation in the expanded EFSF and the SPV may be limited which would reduce the firepower the Europeans thought they had.  This is not a good thing as bond yields continue to rise, most notably in Italy.

Speaking of China, they reported lower than expected PMI manufacturing figures posting a reading of 50.4 vs. an expected 51.8.  This could mean that China is slowing and if they continue to slow, where will global growth come from?

This feeling was not lost in Australia, as the RBA took action by lowering interest rates by 25 bp citing, you guessed it, slowing global growth and a reduced outlook for inflation.  Australia has a keen insight as to the health of China as China is the largest importer of Australian raw materials so the Aussies get a little bit of an advance warning.

However growth is not slowing everywhere as in the UK, GDP figures came in better than expected posting a gain of .5% for the quarter vs. an expectation of .3%.  While this is definitely not robust growth by any means, the repairing of the UK balance sheet through government austerity may be better in the long run.  PMI figures however came in lower than expected posting a reading of 47.4 vs. an expected 50 with index of services lower as well.

So there is massive risk aversion taking place in the market in a continuation of yesterday’s afternoon sell-off.   Stocks are down around the globe, with the German index off some 4%.  US stocks are set to open markedly lower, and commodities are selling off as well with gold crashing through $1700 and oil retreating below $90.

Japanese yen intervention appears to have had little effect vs. the Euro as it is trading back to pre-intervention levels, though it is maintaining weakness vs. USD just above 78.

US ISM manufacturing figures are due out later this morning though they are unlikely to produce enough gains to reverse this market. 

Today’s selling may make tomorrow’s FOMC meeting interesting as Bernanke yet again attempts to jaw-bone markets higher with his free-money pump.  But will it work this time?  Is the hint of QE3 enough to overcome all of the global turmoil and slowing growth? 

At some point, Bernanke’s rhetoric is going to backfire horribly and it is just a matter of time before the markets realize that free money isn’t the answer.  The global economy is in jeopardy of a major slowdown and every threat of this occurring send the market spiraling lower.

The Euro debt crisis resolution was supposed to calm the markets, not inflame them further so someone needs to tell Greece to get their act together.  Will Bernanke save the day tomorrow or exacerbate the crisis further? 

Stay tuned!

October 21, 2011

Forex Market Outlook 10/21/11

The market has been range-bound headed into the weekend, but man, those ranges are pretty big!  I was surprised as I thought we’d see the ranges tighten up but that hasn’t been the case.  Yesterday, the markets made huge moves as various news trickled out regarding the Euro debt crisis.

It is times like these when I tend to be more cautious, as it is difficult to know when news may hit or what its impact may be.  Yesterday, the markets were selling off as risk aversion picked up throughout the early US session, only to completely reverse after “news” came out that the size of the rescue plan is going to be in the magnitude of $1.3 Trillion, with a “T”.  That is encouraging news for the market, as in this case more is better.

But, later that day, news came out that indeed EU leaders needed more time to unveil the plan and that this weekend’s Debt Summit would not produce the resolution but rather next Wednesday will be the day that it is revealed.  While this was initially seen as further stall tactics, the market is willing to give them a few extra days.  They are likely close to a deal, and just need the weekend to sell it to the other members.

Though this creates another set of problems, as any dissension in the ranks could put the markets on edge.  It should be no surprise though that they moved the decision, falling back more in line with what Merkozy originally proposed and not the G-20 timeline.

There’s not a ton of economic data out this morning, with German IFO survey figures coming in better than expected and the UK posting better than expected public finances on lower borrowing.

The big news of the morning came from Canada, where CPI data came in slightly hotter than expected.  Core CPI came in at 2.2% vs. an expected 2%, with the headline figure at 3.2% vs. 3.1%.  The Loonie has strengthened as a result, also being buoyed higher by early risk appetite in the markets.

There is no further news on the docket for today, but there could be more “news” leaked out of the Euro debt debate so there could be volatility.  Not to mention general risk aversion heading into the weekend.

**This just in: USD/JPY tanking here and making a new all-time low at 75.82!  Japanese intervention talk is bound to pick up now as that 76 level was seen as the “line in the sand”.  This could also be the function of USD weakness if they are more involved in the bailouts of Europe.  Stay tuned to this development!  

So the markets are definitely behaving crazily here, so it is always good to remember to use a hard stop and take shorter term trades.  There’s no telling what may happen today or over the weekend, so I’m going to step aside and not try to be a hero over the weekend.  The potential risks do not outweigh the possible rewards.

October 10, 2011

September 29, 2011

September 28, 2011

Forex Market Outlook 9/28/11

Sometimes it feels like Groundhog Day in the forex market as we focus on the same thing over and over again.  So it should come as no surprise that again we are focused on the Euro debt crisis as there is very little other news to sway market sentiment.

Perhaps it will be best if examine the recent events and what they mean for the markets.  Yesterday, Greece was able to pass the vote that raised property taxes as was required by the deal that was made back on July 21st as part of their austerity measures.

But now there is some concern that figures that were used to hammer out that deal have now changed, which means that there could be some opposition to the already-agreed-to plan.  What’s more, the votes to ratify the EFSF are just taking place now in each of the individual countries of the Euro zone, to be able to ratify the previous deal.

The vote to ratify the EFSF deal has already been delayed and is just a formality if all of the countries agree to ratify.  But why has it taken so long to put it to a vote?  This really should be a done deal by now, that is, if they really want to rescue Greece.  If you do X, you get Y. 

But now there are fears that some countries are balking and the constant delaying has kept markets on edge.  I agree with President Obama when he said that Euro inaction is “scaring the markets”.  Of course this elicited a pushback response about the fiscal situation in the US, which of course is true, however it doesn’t justify Europe’s behavior throughout this mess.

So the markets are waiting for the “Troika” (ECB, IMF, EC) to come back with their findings in order to potentially move forward.  One of the additional impediments is that there will be multiple votes over the course of this process and any on slip-up could put Greece in default.  This is one of the reasons why the CDS (Credit Default Swap) market has the odds of a Greek default at over 90%.

So what can the Euro zone do?  Well the idea of expanding the EFSF by levering the balance sheet up has been dismissed as “stupid” by a German official as it could incur a credit downgrade.  So much for Geithner’s suggestions to help.

Contagion is the obvious issue that plagues the Euro zone right now.  If they could let Greece go without causing similar problems in the other countries with debt issues then I think they would in a heart-beat as Greece is actually a pretty small percentage of the region.   Which is also why Merkel’s comments about “building a firewall” around Greece the other day were telling as perhaps there may be more of a push to that end.

Surprisingly, the markets have been faring pretty well the last two days, though yesterday’s afternoon sell-off in stocks here in the US and the subsequent follow-through in Asian markets caused some overnight risk aversion.  We have clearly been trading on risk themes in the market and the correlations of currencies have been pretty strong of late.

It’s essentially Dollar and Yen strength on risk aversion, everything else strong on risk appetite.  The risk appetite we’ve been seeing this week has been pretty strong, though some are dismissing it as a bit of a relief rally.  We have seen expanded to declining range-bound activity in the markets, and this makes sense when we consider that it is the same things over and over again that are ruling market sentiment.

This means increased volatility as the markets proceed with caution, knowing that at any given moment, news can break from the Euro zone which could impact market sentiment.  Therefore, it is very important to keep yourself informed about the news and its potential impact, as it has the ability to disrupt trades if you’re not paying attention.

September 27, 2011

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